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OILEX

Oilex – Production looms

The tale of Oilex in 2008 is similar to most other small oil companies. Progress has been made on all fronts, albeit hampered by difficulties obtaining equipment and tough drilling conditions.

The share price has been slashed however, as investors take a blanket view that future funding will be scarce across the sector and the price of oil will be dampened by lower economic growth.

Oilex has three distinct advantages however. Firstly, it is reasonably well cashed up with A$33.5m in the bank, as at the end of June anyway. The poor old Aussie dollar has made even the pound look strong in recent weeks, but this should cover the majority of the company’s drilling campaign for the current financial year. Secondly, significant levels of production from all of Oilex’s three main projects could be just months away. Last of all, it is mainly targeting oil, which is easier to monetise than gas.

The company has an interest in three onshore oil fields on India’s west coast which are currently producing small volumes of oil. Cambay, first discovered in 1957, is the most attractive. Oilex holds 45% of this field while it has a 40% stake in the other two (Bhandut and Sabarmati).

In the past, over 60 wells at Cambay have been drilled and produced around 50 billion cubic feet of gas. So far Oilex has drilled four out of six planned wells that are appraising the field for development. It also has formal approval for up to 60 further wells, should the appraisal be deemed successful.

There’s plenty still to play for at Cambay with the latest resource estimate dated May 2007 pointing to remaining resources of 300 billion cubic feet of gas and 60 million barrels of oil and condensate. This estimate is based on the Oligocene OS II and Eocene EP III/IV sandstones.
There are three other potential zones which could contain a further 120 billion cubic feet and 60 million more barrels. One of these other zones, the Basal EP IV, produced 120 barrels of oil per day when it was tested recently by one of the wells sunk earlier this year.  

In the last month, Oilex has also had success targeting the Miocene zone. An old well, Cambay-64, has been re-entered and produced flow rates of 300 barrels of oil per day. A few hundred metres away, the fourth well in Oilex’s six-well programme, Cambay-74, has just flowed at a constrained rate of 500 barrels per day over a 7m interval. The Miocene is the shallowest zone at Cambay so it should also be the most economic.

Oilex reckons each development well at Cambay should be able to generate between 500 and 1,000 barrels of oil per day from the Eocene EP III/IV. This is based on a natural flow of 50 barrels per day which fracture stimulation should boost by a factor of between 2.5 to 5 times. Each high angle or horizontal well could have four or five stimulated zones.

It’s not clear at the moment when the final two appraisals will be drilled, as the programme is being re-examined in the light of the recent Miocene success. But an initial reserves report is likely to be produced soon and some of the previous appraisal wells will be brought in production while the field development plan is finalised.

Cambay has perhaps the most potential in Oilex’s portfolio, but production from the Indonesian island of Sumatra is also on the horizon. Back in August, Oilex agreed to raise its stake in the Pendalian oil field from 45% to 60%. The field was first discovered in 1993 and initially had an in place resource estimate of 12 million barrels of oil.

A successful test of Pendalian 3 last year, which was then shut in, has seen this upgraded to a contingent resource of 13.7 million barrels.  Oilex is planning to bring this well into production by the end of 2008 and estimates that it will produce around 1,200 barrels a day from two intervals using artificial lift. It will be joined by Pendalian 4, yet to be drilled, which is expected to add a further 700 barrels or so. These two wells will make up Phase I of the development programme for Pendalian.

In Phase II, three or four more development wells are pencilled in for the first quarter of 2009. The target for peak production for the entire field is between 4,500 to 6,000 barrels per day. In addition, both 2D and 3D seismic is due to be shot over other areas of this block, followed by three exploration wells.

The last of Oilex’s three main projects is based in Oman. Block 56, where Oilex has a 25% interest, is on Oman’s south-east coast. Traditionally this area produces heavy or medium oil and Oman is keen on new discoveries as its oil production has declined by around a quarter since 2001.

Three wells have been drilled in the first phase. Two discovered oil and one of these flowed at around 200 barrels per day. This was an important as it confirmed that the productive trend extends from fields in adjacent blocks.

The second phase will consist of several appraisal wells. The first of these, Sahra 2, has completed drilling with a horizontal intersection of 700 metres, which was 200 metres more than expected. A short-term production test will be carried out with the rig in place and this will be followed by a 120-day extended production test after the rig is removed. Any oil produced will be trucked 25km to a pipeline terminal.

In total, four prospects in Block 56 are being targeted by the second phase of drilling. Sahra has estimated oil in place of 37 million barrels while the other three have 48, 78 and 94 million barrels.

Oilex has an array of other projects. 3D seismic has recently been shot over a 2,000 sq km area of the Timor Sea, where Oilex has a 25% interest in Joint Petroleum Development Contract 06-103. This will combined with existing seismic, together covering 90% of the block. It’s hoped that interpretation of the data will be completed by March 2009 with exploration wells sunk soon after, subject to a license extension. A recent discovery by ENI in an adjacent block tested at over 6,000 barrels per day.

Finally, there is an offshore interest in Western Australia, recently reduced from 20% to 14%, and 13.3m shares in Bow Energy that were acquired when two other Australian interests were sold in 2006. Bow Energy shares recently traded at A$0.20 and Oilex has 13.3m options at $A0.50.

Oilex’s Australian broker, Hartleys, reckons the company’s entitlement sales for the year to June 2010 could be in the region of 1.7m barrels of oil and condensate plus nearly 3 billion cubic feet of gas. While this requires plenty of drillbit action and plans will undoubtedly change along the way, it demonstrates Oilex’s potential.